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- This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.
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- September 21, 2019 at 6:00 am #546803
For PYQ Dec 2013 Q3 part (a) answer
Is it asset beta( business risk )reflect by risk-free rate and equity beta reflect by the cost of equity?
September 21, 2019 at 11:32 am #546852I don’t understand what you are writing.
The asset beta measures the risk of the business. The equity beta measures the risk of the shares – gearing in the company makes the shares more risky.
This is all explained in my free lectures on CAPM.
September 22, 2019 at 7:35 am #547023as answer mentioned” probably due to Nuvola Co’s higher business risk (reflected by the higher asset beta), overall the benefits from growth in excess of the risk-free rate”
which excess the risk-free rate but not cost of capital?
September 22, 2019 at 10:28 am #547068The examiner has not worded it very well. Ignore “in excess of the risk free rate”.
The company is more risky, but the benefit of higher growth and the synergy mean the value has increased.
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